There are layers of hidden meaning in Audit reports, just waiting to reveal themselves.
No, really! Audit reports are very carefully crafted documents, whether for companies, non-profits or government agencies. Although the reports – obviously – rely primarily on numbers and amounts, it is the narrative reports that tell you what the numbers mean. Audit reports are usually intended for audiences with varying levels of understanding of accounting and financial concepts; the narratives take that into account, and explain in layman’s language what’s been going on.
The meat of a report is often to be found up front, in the Executive Summary. Within the Summary, many people don’t get past the Conclusion. In that section is to be found the most impactful language. Here is where the main judgment of the report comes. The important questions that any audience of a report like this ask – Are the numbers accurate? Are they honest? Can I trust them? – are summarized here.
Because the answers to these questions, and their consequences, can be so important, auditors tend to be very precise and understated with their language. Auditors tend to use the same formulaic phrases over and over, if the conditions they find are similar from year to year. There is a confidence factor to running a business or agency that can’t be denied: if auditors use heated language or change their formulas from year to year, that can set off alarm bells, investor or legislative questions and inquiries, news reports, scandal. That’s why everyone hopes to read boring audit reports that are unchanged from year to year.
I described all this above to provide some background to further discussion of the State Auditor’s report on the Trenton Board of Education released last week, and the subject of a Saturday article in the Times. I wrote about this yesterday. It’s a big story.
Last night, I looked again at the State Auditor’s page featuring reports on school districts statewide, and saw that over the last 10 years, there have been four separate reports on the Trenton Board of Ed, including last week’s. I looked them over, as a way to get some context on the new item.
Well, as I described above, the first three reports are critical, but overall they are nothing alarming. They also feature almost identical language, which demonstrates a professional consistency in the operations of the school district . To show you, here are the Conclusions for the first three reports:
December 17, 1999:
“We found that the expenditures included in our testing were related to the school district’s programs, were reasonable, and were recorded properly in the district’s accounting system. However, we did note internal control weaknesses and matters of compliance with laws and regulations meriting management’s attention.”
February 21, 2002:
“We found that the expenditures included in our testing were related to the school district’s programs, were reasonable, and were recorded properly in the district’s accounting system. In making this determination, we noted certain internal control weaknesses and matters of compliance with laws and regulations meriting management’s attention.
“We found that the district had resolved most of the significant issues noted in our prior report. The issues of medical billings, cobra billings, computer inventory and home instruction have been updated in our current report.”
January 17, 2003:
““We found that the expenditures included in our testing were related to the district’s Early Childhood Education Program, were reasonable, and were recorded properly in the district’s accounting system. However, we note certain internal control weaknesses and matters of compliance with laws and regulations meriting management’s attention.”
See? Almost word for word. Three key “R” words are used in each conclusion: expenses were Related to the programs they were intended for, they were Reasonable, and they were properly Recorded. Although each report finds some weaknesses requiring management attention to fix, the overall message to me strikes me as this: “There is some sloppiness here, and management needs to tighten things up, but overall things are OK. Not great, but OK. What failings there are are those of control. No one is ripping off the school district, as far as we can see.” And that was the message from 1999 to 2003.
This makes last week’s report all the more remarkable, and serious, and scandalous. All the comfortable, though mildly scolding language in the previous three reports is gone. In its place is the equivalent of alarm sirens. It’s worth quoting the Conclusion in its entirety:
July 13, 2010:
“We found questionable payments to home instructors and noncompliance with home instruction program requirements. The district is also ineffective in monitoring time reporting for extra duty assignments. In addition, we identified approximately half of the students sent out of district have absences in violation of district policy and services for these students were not properly board approved. We also found inventories were not properly controlled and district resources were utilized for over five years to renovate a city-owned building. We did find controls were in place for the one ARRA [NOTE – the American Recovery and Reinvestment Act – the Federal Stimulus program – KM] program we reviewed. However, the objectives for another program, the Summer Take Home Book Bag program, which could have been funded with ARRA monies, were not clearly communicated and achievements were not measured.
“In March 2010, the Commissioner of Education appointed a monitor to oversee fiscal operations of the district. This increased departmental oversight should ensure district policies and internal controls are properly established and followed. These efforts should assist in operational improvements and cost savings that could be used for educational efforts. In addition, certain questionable items will be referred to the state’s Division of Criminal Justice.”
Please, compare this report’s conclusions with the previous three. No mention of “Related,” “Reasonable,” or “Recorded.” In their place, we read “Questionable,” “Ineffective,” “Violation,” “Not properly board approved,” “Not properly controlled,” and the kicker – ” In addition, certain questionable items will be referred to the state’s Division of Criminal Justice.”
My subjective translation, from Auditor speak: “This is one Humongous Mess, with massive problems wherever we looked! There is abundant evidence of actions that may be criminal, so we are handing that over to the cops. Thank God the State has taken over; we wish them Good Luck in cleaning things up and spending school district money teaching kids rather than the incredible waste we found!”
This report is only the beginning of this story. Apart from Meir Rinde’s article Saturday – which first alerted me to this report – there has been no follow up in the Times; and – surprise!- no mention at all in the Trentonian. Now that this report is out there, I hope that our local cub reporters at the dailies go out and investigate this further. There surely is more stuff out there.
And I want to repeat what I said yesterday: if an audit of some of the School district programs found this kind of mess, how dependable are the accounting numbers that City Hall is working with? What stories lie hidden in those books?
We need to examine the City’s books. We need an Audit.